Facebook Files for $5 Billion IPO

Facebook has released documents for its long-expected initial public offering (IPO), which is expected to value the company at somewhere between $75 billion and $100 billion.

In its filing with the Securities and Exchange Commission, the social media giant said it was seeking to raise $5 billion, but the Wall Street Journal is reporting that the number is likely to rise to $10 billion when it goes to market in the spring.

The filing showed revenues of $3.71 billion in 2011, up from $1.97 billion in 2010 and $777 million in 2009. Net income hit $1 billion in 2011, up from $606 million in 2010 and $229 million in 2009, with earlier years showing a loss.

Most of this revenue was from advertising, which hit $3.2 billion in 2011.

In 2011 the company spent about $388 million in research and development.

In the filing the company also reported extensive usage, with 845 million monthly active users, 2.7 billion likes and comments each day, 100 billion friendships and 250 million photos uploaded every day.

The company's filing with the Securities & Exchange Commission will be closely scrutinized by TV and media companies who have become increasingly close partners of Facebook in recent years as the social media site has become an important tool for reaching viewers and delivering video.

The filing listed founder and CEO Mark Zuckerberg as owning
28.2% of the voting stock and having proxies to vote additional stock, giving
him control of 56.9% of the voting shares prior to the IPO.

In terms of compensation, Mark Zuckerberg received a base
salary of $483,333, bonuses of $220,500, other compensation valued at $783,529
for a total of $1,487,362 in 2011.

COO Sheryl K. Sandberg received a base salary of $295,833,
bonuses of $86,133, stock awards valued at $30,491,613 for a total package of
$30,873,579.

The second highest compensated executive was Mike
Schroepfer, VP of engineering who received a total package of $24.7 million in
2011.

Facebook has never declared cash dividends in the past and plans
to continue that policy retaining "any future earnings to finance the operation
and expansion of our business."

In the 300-plus page filing, Facebook listed its key
business opportunities as advertising and payments for virtual and digital
goods.

The company noted a substantial portion of revenue currently
comes from advertising, with advertising accounting for 98% of revenue in 2009,
95% in 2010 and 85% in 2011.

Overall, ad revenue grew 69% to $3.15 billion in 2011.
"Advertising revenue grew due to a 42% increase in the number of ads delivered
and an 18% increase in the average price per ad delivered," the filing noted.

Facebook also cited research projecting that "worldwide
revenue generated from the sale of virtual goods increased from $2 billion in
2007 to $7 billion in 2010, and is forecasted to increase to $15 billion by
2014."

In terms of risks, the company noted a variety of factors,
including the possibility that it could see a decline in the number of users;
the failure to introduce new products that would attract users; a very
competitive marketplace where Facebook faces significant competition from
companies like Google, Microsoft and Twitter; the migration of usage from PC to
mobile platforms, where Facebook doesn't display ads; increased government
regulation; and a decline in advertising.

The company also noted that a backlash against some of its
privacy policies posed a danger to its future growth. "Media, legislative, or
regulatory scrutiny of our decisions regarding user privacy or other issues,
which may adversely affect our reputation and brand," the filing stated.

With the company's growth, expenses have also increased
rapidly, from $515 million in 2009 to $942 million in 2010 and $1.96 billion in
2011.

At the end of 2011, Facebook had 3,200 full-time employees,
an increase of 50% from 2010, and the company noted that "we expect this growth
to continue for the foreseeable future."

The company currently has some $3.9 billion in cash,
marketable securities and cash equivalents, which leaves it well positioned to
invest in its businesses in upcoming years.

Beyond the challenge of expanding ad revenue and finding new
sources of business, Facebook will also have to find ways to make money off of
its mobile efforts which are large but have produced little money.

The filing noted the company had more than 425 million
monthly active users of their mobile products in December 2011, yet "we do not currently directly generate any meaningful
revenue from the use of Facebook mobile products, and our ability to do so
successfully is unproven."

The filing noted that
Facebook hoped, however, to exploit "future monetization opportunities such as
the inclusion of sponsored stories in users' mobile News Feeds."

Facebook also stressed the
importance of Zynga, which accounted for approximately 12% of Facebook's
revenue. Zynga's apps also generated a number of pages "on which we display ads
from other advertisers," Facebook reported.

In terms of its international
expansion, Facebook noted that it currently makes Facebook available in more
than 70 different languages, and maintains offices or data centers in more than
20 different countries but has not as yet entered China, where it faces serious
regulatory and business hurdles.

The filing also notes that there are "more than two billion
global Internet users....and we aim to connect all of them. We have achieved
varying levels of penetration within the population of Internet users in
different countries. For example, in countries such as Chile, Turkey, and Venezuela
we estimate that we have penetration rates of greater than 80% of Internet
users; in countries such as the United Kingdom and the United States we
estimate that we have penetration rates of approximately 60%; in countries such
as Brazil, Germany, and India we estimate that we have penetration rates of
approximately 20-30%; in countries such as Japan, Russia, and South Korea we
estimate that we have penetration rates of less than 15%; and in China, where
Facebook access is restricted, we have near 0% penetration."

Daily active users increased 48% to 483 million on average
during December 2011 from 327 million during December 2010. In the U.S. and
Canada, daily active users increased from 64 million in December of 2009 to 99 million
in 2010 and 126 million in December of 2011.

While the company has a substantial international reach,
much of its business still comes from the U.S. "In 2011, we generated
approximately 56% of our revenue from advertisers and Platform developers based
in the United States, compared to 62% in 2010," Facebook's filing noted.

The filing noted that "television, print, and radio
accounted for $363 billion, or 62% of the total advertising market in 2010" but
that "brand advertisers will increasingly dedicate a portion of their
advertising dollars to Facebook because the broad audiences they are trying to
reach are active on Facebook on a daily basis, because we can reach their
desired audiences with precision, and because they can spark word of mouth marketing
through Facebook. In December 2011, an advertiser could reach an estimated
audience of more than 65 million U.S. users in a typical day on Facebook. By
comparison, the 2011 season finale of American
Idol was viewed by an estimated U.S. audience of 29 million people."

In addition, the Facebook noted that at the end of 2011,
"more than seven million apps and websites were integrated with Facebook."